Numerical Index | Alphabetical Index

WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

CONTENTS

Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details

Passage History

Date Introduced: 2 December 1998

House: House of Representatives

Portfolio: Treasury

Commencement: The Bill will apply from the date of Royal Assent.

 

Purpose

This is one of two companion Bills which implements the Australian Business Number (ABN) scheme with an Australian Business Register (ABR) to which the public will have access. It will be referred to as the ABN Bill in this Digest. The other Bill to implement the ABN scheme - A New Tax System (Australian Business Number Consequential Amendments) Bill 1998, (referred to as the ABN(CA) Bill in this Digest) - declares that the ABN Act (the ABN Bill when enacted) is a taxation law for the purposes of the Taxation Administration Act 1953 (TAA 1953). The reader is referred to the Bills Digest on the ABN(CA) Bill for commentaries on that Bill.

The ABN scheme is central to the administration of the goods and services tax (GST) as well as improving tax compliance within the Commonwealth tax system generally. The term 'business' is given a wide meaning in proposed clause 41 and includes any profession, trade, employment, vocation or calling, but not including occupation as an employee. The term entity is also given a very wide meaning in proposed clause 37 and covers all kinds of legal person as well as groups of legal persons and other things that in practice are treated as having a separate identity as a legal person does. The ABR will therefore be a register with unique identifying numbers of all entities whether individuals or otherwise, engaged in any enterprise in Australia. Individuals whose only occupation is that of employees will not be included in the ABR. The ABR will be administered by the Registrar who will be the Commissioner of Taxation.

The main purposes of the ABN Bill as set out in proposed clause 3 specially designed to outline its purposes are:

• to make it easier for businesses to conduct their dealings with the Commonwealth Government by establishing a system for registering businesses on a register to be known as the Australian Business Register (ABR) and issuing them with unique identifying numbers to be known as the Australian Business Numbers (ABNs) so that they can identify themselves reliably:

  (a) in all their dealings with the Commonwealth Government, and

  (b) for all other Commonwealth purposes.

(proposed subclause 3(1))

• without limiting paragraph (b) above, the main Commonwealth purpose includes allowing businesses to identify themselves reliably for the purposes of Commonwealth taxation laws (proposed subclause 3(2)), and
• to reduce the number of government registration and reporting requirements by making the system available to State, Territory and local government regulatory bodies (proposed subclause3(3)). This will be facilitated by allowing anybody to access the information on the Australian Business Register under proposed clause 26.

It will be noted that no direct reference is made in proposed clause 3 to the fact that the ABN is the unique identifying number central to the administration of the GST. There is an indirect reference in proposed subclause 3(2) to that purpose when it states that the main object includes allowing businesses 'to identify themselves reliably for the purposes of taxation laws'. Doubtless, given the definition of taxation laws in proposed clause 41, it will include the laws that will be enacted to implement the GST.

The laws implementing the GST, being a multi-staged tax on goods and services, with a system which includes the requirement to include the ABN on all tax invoices is the one Commonwealth taxation law where the ABN has significant impact on transactions between business entities. Yet, proposed clause 3 specially designed to explain the objects of the Bill makes no direct reference to the role of the ABN in the administration of the GST.

It is left to the Explanatory Memorandum to the two Bills implementing the ABN Scheme to indicate the pivotal role of the ABN, when it states that it will:

• be the public registration number for the GST, and
• the introduction of an ABN will improve tax compliance by allowing business, in their dealings with one another and the Australian Taxation Office (ATO), to identify themselves reliably and report regularly for the purposes of taxation laws.(1)

The policy objectives of the ABN scheme is thus clearly stated in the Explanatory Memorandum. It is significant that the Explanatory Memorandum states that the ABN is to be used by business 'in their dealings with one another'. This adds a new dimension to the purpose of the two Bills setting up the ABN scheme which has not been indicated in proposed clause 3 of the ABN Bill.

 

Background

Implementing the A New Tax System

This Bill is one of a package of 17 Bills(2) that was introduced into the House of Representatives in December 1998, to give effect to Government's proposals on 13 August 1998 for a new tax system, which included the introduction of a GST. The outline of the Government's proposals were contained in the policy document Tax Reform: not a new tax, a new tax system: The Howard Government's Plan for a New Tax System,(3) which will be referred to as the A New Tax System (ANTS) in this Digest. An Overview of ANTS and further details of the proposals were contained in Fact Sheets, all of which were available in the Government's Tax Reform Website: http://www.taxreform.gov.au

Proposed section 1-3 of the A New Tax System (Goods and Services Tax) Bill 1998 (the GST Bill) provides that the Commonwealth will introduce further legislation to give effect to the Agreement on Principles for the Reform of Commonwealth-State Financial Relations endorsed at the Special Premiers' Conference in Canberra on 13 November 1998. In the Second Reading Speech on the GST Bill, the Treasurer stated that the Government proposes to enact the whole package by the end of this financial year and that when the package is enacted, Australia will have a new tax system from 1 July 2000.(4) The Prime Minister also stated in Parliament that further tranches of legislation will be introduced early in 1999 to implement the new tax system.(5)

ABN - the Single Business Identifier recommended by the Bell Report

ANTS indicated that the introduction of a single business identifier would change business registration and allow business to meet its regulatory obligations and access information and assistance through one, or as few as possible, entry points to Government. It added:

The role of the Australian Business Number in administering the GST and reducing tax avoidance

ANTS aims to reduce tax avoidance and the growth of the cash economy. It is anticipated that the ABN will play a significant role in matching information in the administration of the GST which is a multi-staged tax requiring reports from more taxpayers than under the existing wholesale sales tax (WST) regime.(7)

Contract workers in particular and those who do not provide an ABN on invoices, are to be targeted by a withholding tax arrangement.

A reporting system based on tax invoices carrying an ABN is envisaged and should be a powerful instrument to tracking down tax evaders in the tax system as a whole and not only of the GST.

Main Provisions

Who is entitled to an ABN?

Part 2 of the Bill deals with the registration for ABN purposes. A person carrying on an enterprise in Australia is entitled to have an ABN under proposed subclause 8(1). A corporations law company is entitled to an ABN. An ABN will also be available to other entities which need to be registered for the Goods and Services Tax (GST) such as charitable and religious institutions.(10)

Is it mandatory for an entity required to register for the GST to make application for an ABN?

It is not mandatory for every business entity to seek registration for an ABN. Part 2 of the ABN Bill states that every entity carrying on an enterprise in Australia is entitled to an ABN (proposed clause 8).

The Explanatory Memorandum to the ABN Bill confirms that it is not mandatory for a business entity to have an ABN, but adds a caveat that an entity will be required to have an ABN to register for GST purposes.

The Explanatory Memorandum to the ABN Bill makes it clear that the ABN will be the public registration number for the GST:

The Regulation Impact Statement states that the ABN will facilitate the implementation of the GST registration process:

Thus the role intended for the ABN in the administration of the GST is clearly set out in the Explanatory Memorandum to the ABN Bill.

The tranche of legislation introduced so far to implement the new tax system does not indicate what detail the Commissioner will require in the form of application for registration for the GST under proposed clause 25-5 of the A New Tax System (Goods and Services) Bill 1998 (the GST Bill). The details required for registration will be specified in writing by the Commissioner in a form to be approved by the Commissioner under proposed clause 186-1 of the GST Bill.

Thus it is very likely that the Commissioner will require quotation of the ABN of an entity in an application form for registration for the GST if the ABN is to play the role in the GST registration process spelt out in the Explanatory Memorandum.

An examination of the provisions in the Bills introduced so far would appear to support that view, particularly as there are sanctions for not quoting the ABN in tax invoices.

If an entity is carrying on an enterprise, that entity is required to be registered for the GST if the annual turnover is at or above $50,000 (proposed clauses 23-5 and 23-15(1) of the GST Bill). The Commissioner must register an entity for the GST if satisfied that the entity is required to be registered for the GST. Even if an entity has not applied for registration for the GST the Commissioner must register such an entity where the Commissioner is satisfied that the entity is required to be registered (proposed subsection 25-5(2)). If the Commissioner decides to register an entity for the GST whether or not that entity has applied for registration, the Commissioner must specify in a notice to that entity the registration number of that entity under proposed paragraph 25-5 (3)(b) of the GST Bill. This provision therefore holds out the prospect of the Commissioner assigning a registration number to an entity which has not only not applied for GST registration but also not applied for an ABN. The ABN Bill has provision for the allocation of an ABN only to persons who have applied for an ABN. Therefore this excludes the Commissioner registering an entity which has not applied for registration for the GST or an ABN and allocating to that entity an ABN.

The GST Bill does not define the term registration number but defines the ABN. Under proposed clause 195-1 of the GST Bill, ABN has the same meaning as in proposed clause 41 of the ABN Bill. The question arises whether the registration number to be allocated to an entity on registration for the GST is a number different from its ABN.

There are two options open to the Commissioner in these circumstances.

Option A

The Commissioner could request that entity to obtain an ABN by due process of application under the ABN Act and suspend registration for the GST until an ABN is produced by that entity.

Option B

The Commissioner could register that entity for the GST and allocate a registration number which is not an ABN.

Option B is the course available to the Commissioner if there is to be strict compliance with the provisions of proposed clause 25-5 of the GST Bill. The Commissioner can suspend registration of an entity that has not applied for GST registration only till the Commissioner is satisfied that that entity is 'required to be registered'. Thus for instance under the definition of 'required to be registered' in proposed clause 195-1 of the GST Bill once the Commissioner is aware that an entity is carrying on an enterprise and its annual turnover is over $50,000 the Commissioner must be satisfied that the entity is required to be registered under proposed clause 23-5 of the GST Bill. In these circumstances the Commissioner is obliged to register that entity for the GST whether or not that entity has an ABN and in terms of proposed paragraph 23-5(3)(c) must give a registration number which can only be a number other than the ABN to an entity that does not have an ABN.

Thus Option A may not be available to the Commissioner in all circumstances and hence the allocation of a registration number other than the ABN will be necessary for entities which do not have ABNs. This in practice would mean that entities would be registered for GST under their ABNs or another series of registration numbers. The continued existence of the dual system of registered numbers would thwart Government's intention as stated in the Explanatory Memorandum to make the ABN the public registration number for the GST. However, an entity registered for the GST without an ABN would be liable to penalties for not quoting its ABN on each tax invoice issued in respect of a taxable supply or each adjustment note, as indicated below, and this would compel entities registered for the GST without an ABN to seek an ABN as early as possible under the ABN Act.

Proposed paragraph 29-70(1)(b) of the GST Bill provides that a tax invoice for a taxable supply must set out the ABN of the entity that issues it. In addition a tax invoice must contain such other information as the regulations specify (proposed paragraph 29-70(1)(d)) and must be in the approved form (proposed paragraph 29-70(1)(e)). Further, proposed paragraph 29-75(1)(b) of the GST Bill states that an adjustment note in relation to a taxable supply must set out the ABN of the entity that issues it. In addition an adjustment note must contain such other information as the Commissioner determines in writing (proposed paragraph 29-75(1))(c)) and must be in the approved form (proposed paragraph 29-75(1)(d)). There is no requirement in proposed clauses 29-70 and 29-75 that the registration number given by the Commissioner in proposed paragraph 25-5 (3)(b) in the absence of an ABN must be included in tax invoices and adjustment notes. The requirement to show the registration number in tax invoices, if different from the ABN, may be included in regulations made for the purposes of proposed paragraphs 29-70 (1)(d) or in an approved form approved by the Commissioner under proposed paragraph 29-70 (1)(e). Similarly the Commissioner may require that the registration number, if different from the ABN, should be included in the adjustment note by a determination in writing under proposed paragraph 29-75(1))(c) or on a form to be approved by him or her under proposed paragraph 29-75(1)(d).

Non-registration of a business entity for the GST carries sanctions. The failure to apply for registration under the GST Act when required to do so is to be included in subsection 8C(1) of the TAA 1953 by proposed paragraph 8C(1)(g) as an offence for failure to comply with a requirement under a taxation law (Schedule 1, item 3).(14)

There are sanctions for not including ABNs in tax invoices and adjustment notes in respect of a taxable supply. The A New Tax System (Goods and Services Tax Administration) Bill 1998 (the GST Administration Bill) will insert proposed Part VI in the TAA 1953 by item 7 of Schedule 1. Proposed subsection 44(1) of Part VI provides a penalty of 20 penalty units for failure to issue a tax invoice as required by proposed clause 29-70 of the GST Act. Proposed subsection 44(1) provides a penalty of 20 penalty units for failure to issue an adjustment note as required by proposed clause 29-75. The tax invoice or adjustment note must set out the ABN and the question arises whether a person who does not have an ABN (because under the two ABN Bills it is not mandatory to apply for an ABN and has not done so) will be not liable to the penalties if the ABN is not shown on tax invoices and adjustment notes. An illustrative example of a tax invoice in the Explanatory Memorandum to the GST Bill includes the ABN and not the registration number if that is different from the ABN.(15) The Explanatory Memorandum also indicates what the regulations could require in tax invoices and the list of possible items does not include a registration number, if that is different from the ABN.

Thus although the two Bills setting up the ABN scheme do not make it mandatory for every entity carrying on business in Australia to make application for an ABN, it is clear that the scheme of the proposed legislation implementing the new tax system and the GST in particular provides sanctions for not being able to quote an ABN on tax invoices or adjustment notes in respect of taxable supplies it makes. The ABN Act which has been declared to be a taxation law under the ABN (CA) Act must be interpreted together with the provisions in the entire package of Acts, particularly the GST Act and the GST Administration Act, to implement the new tax system. The sanctions under the GST Administration Act for not including the ABN in a tax invoice or adjustment note makes it mandatory for an entity required to be registered for the GST to apply for an ABN.

However, there is an argument that may be advanced that the requirement to quote an ABN in a tax invoice or adjustment note under the proposed measures is only conditional on the supplier of a taxable supply having an ABN. This interpretation is based on the premise that the two ABN Bills do not compel an entity to register for an ABN and therefore the Commissioner is precluded from requiring an entity to apply for an ABN. It places greater emphasis on the statement in the Explanatory Memorandum that it is not mandatory for an entity to apply for an ABN and less emphasis on the subsequent statement in the same Explanatory Memorandum that an entity will be required to have an ABN to register for GST purposes. Further, it ignores the illustrative example of a tax invoice which shows the ABN and not any other registration number. It also does not take into account that the Regulation Impact Statement states that the ABN will facilitate the implementation of the GST registration process.(16)

On this interpretation, the registration number to be notified to an entity under proposed paragraph 25-5 (3)(b) could be a number other than the ABN as indicated earlier. This will cater to situations where the Commissioner registers an entity for the GST and that entity has not applied for an ABN. If this interpretation is correct there will be no effective public registration number for the GST and the administration of the GST will suffer as will the objectives of improving tax compliance and making inroads into the cash economy claimed for the ABN in ANTS.

The writer takes the view that there is nothing in the two Bills establishing the ABN scheme to preclude the Commissioner requiring an entity seeking registration for the GST to make application for an ABN in the first instance, unless the ABN Act is held to be invalid for lack of Commonwealth constitutional power. In fact the GST Administration Act imposes penalties for not quoting an ABN on each tax invoice and adjustment note.

If for some reason these two Bills do not become law at the time the GST law is enacted and the ABN cannot be used as the public registration number for the GST, the registration number in proposed paragraph 25-5 (3)(b) may become the fall back numbering system. However, a registration number other than the ABN may not be a fall back position as the problem of dealing with the requirement in the GST Act to include an ABN in tax invoices and adjustment notes will still remain. This may also be the case if it is held that the Commonwealth has no constitutional power to set up an Australian Business Register including entities such as partnerships, trusts and sole proprietors and their associates. The constitutional issues are discussed in the Digest on the ABN(CA) Bill which declares that the ABN Bill is a taxation law.

On the other hand if the Bills setting up the ABN scheme become law at the same time as the GST law, the Commissioner will not be precluded from using the ABN as the registration number in proposed paragraph 25-5 (3)(b). It will be seen that the validity of the ABN Act is crucial to the scheme for the imposition of the GST.

Will registration for an ABN be conditional on the disclosure of TFNs of an entity and its associates?

Section 8WA of the TAA 1953 makes it an offence for a person to request another person to quote the other person's tax file number (TFN) for the purpose of establishing the other person's identity, unless in certain circumstances specified in that section.

Item 5 of Schedule 1 of the ABN (CA) Bill which inserts proposed subsection 8W(1A) authorises a person to request another person to quote the other person's TFN if it is for the purpose of including the TFN in an application for registration of an entity under the ABN Act.

The term entity under the ABN Act covers all kinds of legal persons. It also covers groups of legal persons, and other things, that in practice are treated as having a separate identity in the same way as a legal person does.

Thus if the entity making application for an ABN is a trust, the TFNs of the entity, the trustee, the beneficiaries and associated trusts may be requested by the person preparing the application without contravening section 8WA of the TAA1953. The categories of persons whose TFNs will be relevant for the purpose of an application by an entity for an ABN may only be known when regulations under proposed clause 31 of the ABN Act.

Proposed subparagraph 9(2)(a) of the ABN Bill states that the application for registration in the ABR must be in the form approved by the Registrar and proposed subclause 9(3) states that without limiting the powers conferred on the Registrar under proposed subparagraph 9(2)(a) the approved form may require an entity generally to set out in the application:

• the name and address of, and other information about an associate (proposed subparagraph 9(3)(a)(i); or
• any identifying number (other than a TFN) that has been issued to the entity or to an associate (proposed subparagraph 9(3)(a)(ii)); and
• may request, but not compel, an entity to provide the entity's TFN or that of an associate (proposed paragraph 9(3)(b).

The term associate for the purposes of proposed subsection 9(3) has the same meaning as in section 318 of the ITAA 1936 under proposed section 41. This is a very wide definition as will be seen from Attachment A and covers all kinds of entities that may be connected with natural persons, companies, trustees, partnerships and public unit trusts. Proposed paragraph 9(3) does not appear to restrict the request for TFNs of associates to those engaged in business activities. In the absence of this restriction the door is wide open for the linking of TFNs of associates of various entities in the office of the Registrar as well as in the offices of persons making application for an ABN on behalf of an entity.

Proposed clause 10 states that the Registrar must register an entity in the ABR if, among other things, the Registrar is satisfied that the identity of the entity has been established ( proposed paragraph 10(c)). Thus, although proposed paragraph 9(3)(b) does not provide for the Registrar to compel an entity to disclose its TFN or that of an associate, the absence of the TFN may be a factor which the Registrar may take into account in coming to a conclusion that the identity of an entity has not been established to his or her satisfaction. This would likely to be the case if the 'other information' which the Registrar is entitled to request about an associate under proposed subparagraph 9(3)(a)(i) is also not to his or her satisfaction.

It must be noted that the application for registration must be in a form approved by the Registrar. While proposed clause 31 provides for the making of regulations prescribing matters necessary or convenient to give effect to the ABN Act, there is no provision in proposed clause 9 that the other information that the Registrar might require in the form approved by him or her should be those prescribed in regulations.

Given these requirements it is predicable that persons who have operated in the cash economy so far will not seek registration for the ABN or GST as these registrations will be underpinned by the requirement to disclose their TFN as well as that of their associates.

What is the Australian Business Register (ABR) and what information will the ABR contain?

Under proposed subclause 24(1) the Registrar, who is the Commissioner of Taxation under proposed subclause 28(2), must establish and maintain an Australian Business Register which may be kept in any form that the Registrar considers appropriate ( proposed subclause 24(2)). The ABR must include details such as the entity's name, ABN, date of effect of the registration, address for service of notices and details that will be prescribed in regulations (proposed clauses 25 and 31).

The Regulation Impact Statement(17) states that the estimated number of ABN registrations in 1999-2000 is 2.1 million as indicated by the following entity type.

 

Entity	Number '000
Companies	650
Superannuation funds	150
Individuals	500
Partnerships	420
Trusts	180
Tax exempt bodies	200
Total	2,100

 

Entity is defined in proposed 37 of the Bill, and in view of its wide meaning the entire definition is set out below.

The note to proposed subclause 37(1) above illustrates the difficulties that may be encountered in ascertaining the true identity of an entity. The basic identification information which will be of assistance to small business in day to day dealings with other entities must relate to the identity of persons who own, manage and control other entities.

The ABR will include details of entities carrying on various enterprises. The term 'enterprise' is defined in proposed subclause 38(1) of the Bill to mean an activity or series of activities done:

• in the form of a *business, or
• in the form of an adventure or concern in the nature of trade, or
• on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property, or
• by the trustee of a fund that is covered by, or by an authority or institution that is covered by, Subdivision 30-B of the *ITAA 1997 and to which deductible gifts can be made, or
• by a charitable institution or by a trustee of a charitable fund, or
• by a religious institution, or
• by the Commonwealth, a State or a Territory, or by a body corporate, or corporation sole, established for a public purpose by or under a law of the Commonwealth, a State or a Territory.

However proposed subsection 38(2) states that 'enterprise' does not include an activity, or series of activities, done:

• as an employee or other PAYE earner
• as a private recreational pursuit or hobby; or
• by an individual (other than a trustee of a charitable fund), or a *partnership (all the members of which are individuals), without a reasonable expectation of profit or gain, or
• as a member of a local governing body established by or under a law of a State or Territory (other than an eligible local governing body within the meaning of section 221A of the *ITAA 1936).

* These terms are specially defined in the Bill.

The meaning of 'enterprise' in section 38 of the Bill is identical with the definition of 'enterprise' in section 9-20 of the GST Bill.

Will the public have access to the ABR?

As public access to information contained in the ABR is authorised by proposed clause26, any person may inspect the Australian Business Register and take copies of entries in the Register on payment of the prescribed fee (if any). Proposed clause 30 provides for the protection of an entity's information and documents obtained by the Registrar, or his or her officers, in the course of establishing, maintaining and using the Australian Business Register. It is therefore likely that the Registrar may obtain a wide range of information in relation to an entity as a condition for registration, than will be made accessible to the public.

It will be necessary to await the regulations to know what further details relating to an entity will be available in the ABR. The Explanatory Memorandum whilst elaborating on the objects of the Bill as set out in proposed clause 3 gives an insight of what further information the ABR will contain when it states that the ABN 'will allow small business to access basic identification information about other entities they are dealing with'.(18)

What safeguards will there be for the protection of confidentiality of information?

Proposed clause 30 deals with the protection of confidentiality of information. It restricts:

• what an 'entrusted person' (defined in Division 15);
• may do with 'protected information' or 'protected documents' (defined in Division 15);
• that the entrusted person has obtained in the course of 'official employment' (defined in Division 15).

The expression entrusted person as defined in proposed paragraph 30(3)(c) is the Registrar. However, the definition of 'official employment' in proposed section 41 referred to in proposed subsection 30(1) is wide enough to include a person employed by the Commonwealth or performing services for the Commonwealth including a person to whom the Registrar may delegate powers and functions under section 8 of the Taxation Administration Act 1953 (the TAA1953).

'Protected document' as defined in proposed clause 41 means any document made or given under, or for the purposes of, this Act (the Bill when enacted).

'Protected information' as defined in proposed clause 41 means information that meets all the following conditions:

2. it relates to the affairs of a person (including a company) other than the entrusted person

3. it was obtained by the entrusted person, or by any other person, in the course of official employment

4. it was disclosed or obtained under this Act.

Proposed subclause 30(2) makes it an offence for the entrusted person to make a record of the protected information or disclose it to anyone else if the recording or disclosure is not done in accordance with proposed subclause 30(3). The penalty is imprisonment for 2 years.

When can the Registrar disclose information without committing an offence?

Proposed subclause 30(3) sets out the circumstances when it is not an offence to record or disclose protected information. As mentioned earlier the Explanatory Memorandum makes it clear that the ABN will be the public registration number for the GST and that it will enable business in their dealings with one another to identify themselves reliably.(19) The question arises whether one business entity dealing with another can in relation to GST matters obtain more information from the Registrar than each others ABNs, to enable one entity to identify the other entity reliably. Further can the Registrar disclose such information in his or her possession without committing an offence under proposed subclause 30(2).

The answer to these questions must await the making of regulations under proposed paragraph 25(2)(b) to know what details prescribed by regulations must be entered in the Australian Business Register by the Registrar. Proposed subclause 26(1) authorises any person including a company to take copies of entries in the ABR on payment of the prescribed fee. Proposed subclause 26(2) authorises the disclosure necessary to enable any person to take copies of entries in the ABR.

However, if the details in the ABR are not adequate to enable one entity to identify another entity reliably for the purpose of the GST can such an entity make application for more information from the Registrar and is the Registrar authorised to disclose such information under proposed subsection 30(3).

There is no specific provision in the Bill, apart from the provision of proposed section 26 providing for access to the ABR ,for an application to be made to the Registrar for further information regarding the identity of an entity or an associate.

However, the following provisions permit disclosure to any person for specified purposes including the administration of the GST:

• when the recording or disclosure is for the purposes of the ABN Act (proposed paragraph 30(3)(a);
• when the entrusted person is the Registrar and the disclosure is to another person for the purpose of that other person carrying out functions under a taxation law (proposed subparagraph 30(3)(c)(iii))
• when the disclosure is by a person authorised by the Registrar to disclose the information and the disclosure is made to another person for the purpose of that other person carrying out functions under an Act administered by the Commissioner of Taxation (proposed subparagraph 30(3)(d)(iii).

The Explanatory Memorandum does not offer much assistance on the implications of these disclosure provisions. The only comment it makes on proposed clause 30 is as follows.

It may be concluded that the above provisions in proposed clause 30 cannot refer to the details in the ABR which are accessible to the public under the provisions of proposed section 26. It may only refer to other information not on the ABR but obtained under the ABN Act and in the possession of the Registrar. As mentioned earlier the ABN Act will be a taxation law for the purposes of the TAA1953 and the question whether information obtained under the ABN Act will be protected by the Privacy Act 1988 and the secrecy provisions of the TAA1953 will be considered in the following paragraph.

Will information obtained under the measures in the Bill, other than on the ABR be protected by the Privacy Act 1988?

Subsection 8WA(1) of the TAA 1953 prohibits a person requiring the quotation of a TFN. except in certain circumstances authorised under that subsection. Proposed clause 5 of the ABN (CA) Bill provides that a person does not contravene subsection 8WA(1) of the TAA 1953 by asking another person to quote the other person's TFN if the request is made so that the TFN can be included in an application for the registration of an entity under the ABN Act in the form to be approved by the Commissioner of Taxation. This measure would cover the situation of the Registrar requiring an applicant for an ABN in respect of an entity to quote the TFN of that entity without contravening the provisions of subsection 8WA(1).

Section 6 of the Privacy Act 1988 gives the following definitions of relevance to the information that may be available under the ABN Act.

• personal information means information or an opinion (including information or an opinion forming part of a database), whether true or not, and whether recorded in a material form or not, about an individual whose identity is apparent, or can reasonably be ascertained, from the information or opinion.
• tax file number means a tax file number as defined in Part VA of the Income Tax Assessment Act 1936.
• tax file number information means information (including information forming part of a database), whether compiled lawfully or unlawfully, and whether recorded in a material form or not, that records the tax file number of a person in a manner connecting it with the person's identity.

Paragraph 27(1)(b) of the Privacy Act 1988 authorises the Privacy Commissioner to examine the possible adverse effects on the privacy of individuals of proposed legislation:

Likewise paragraph 27(1)(k) of the Privacy Act 1988 authorises the Privacy Commissioner to examine proposals for data matching or data linkage.

There is no information in the Regulation Impact Statement whether the Privacy Commissioner has examined the new use to which TFNs may be put under the proposed legislation to implement the new tax system.

 

Concluding Comments

Impact of the Business Registration System on the Cash (or Black) Economy

In ANTS the Government suggested that identifying every business entity with an Australian Business Number (ABN) was central to the successful implementation of the GST. Of course, the ABN has advantages in its own right whether or not the GST is introduced. For that reason the ABN received bipartisan support in the 1998 election.

The Government has said it wants the new business numbering arrangements to be introduced as soon as possible, and particularly before the GST commences.

ANTS aims to reduce tax avoidance and the growth of the cash economy. It is anticipated that the ABN will play a significant role in matching information in the administration of the GST which is a multistaged tax requiring reports from more taxpayers than under the existing wholesale sales tax (WST) regime.

Under ANTS the five existing payment and reporting systems (PAYE, PPS, RPS, provisional tax and company instalments) will be replaced with one new comprehensive pay as you go (PAYG) system.

From the details given in ANTS, the most effective measure is the deduction to be made from an invoice presented by a person carrying on a business without quoting an ABN. The limits to its effectiveness will be set by persons who operate in the cash economy at present, who may not seek an ABN from the ATO but will continue their business operations in the cash economy.

Quite apart from the merits of the ABN, advocates of the GST would see it as contributing to greater compliance with taxation obligations. The subjecting of services to the GST, as against the WST exemption of services, could also enhance income tax compliance by providers of services to business. The reasoning here is that as one business tries to find GST credits it puts pressure on suppliers to comply with the suppliers' GST obligations. Honest reporting under the GST means it is easier for the ATO to detect under-reporting of income for income tax purposes. However, there are two factors which will assist those who wish to continue to operate in the cash economy:

• the exemption from the requirement to register under the GST for a business with a turnover of less than $50,000, and
• service providers to households will, with offers of discounts for payment in cash, generally not be required to provide tax invoices.

The exemption from the need to register under the GST system, if the turnover is less than $50,000, will offer opportunities for some in the cash economy to split business activities in a number of names, some of whom may be in the same family, so that no one name has a turnover that exceeds $50,000.

In the UK, the VAT registration threshold is at present 50,000. A Natwest Small Business Research Trust (SBRT) quarterly survey has indicated that almost one in five unregistered firms avoid business which would carry them over the 50,000 threshold. In the UK there has been a call by small business for VAT registration threshold to be increased to 100,000.(23)

It could be argued that being unregistered has the disadvantage that VAT credits on inputs cannot be claimed and the unclaimed VAT credits are reflected in higher selling prices. A firm deciding to be unregistered has therefore to weigh the advantages of claiming the VAT credits against the disadvantages of higher selling prices and compliance costs. Of course, so long as the business's value added is positive the business's own VAT liability will in general exceed any VAT credits on inputs. Hence there is generally a positive incentive for business to stay out of the VAT system.

The fact that only service providers to businesses must quote an ABN to avoid the withholding payment, leaves such providers able to continue to operate in the cash economy when providing services to households notwithstanding the introduction of the GST and the ABN registration system. This opportunity to continue to operate in the cash economy will be minimised if it is an offence to carry on a business in Australia without an ABN. The constitutional issues surrounding the requirement for every person carrying on business in Australia to apply for an ABN is considered elsewhere in this Digest.

There is an argument to the effect that an individual GST payer will want to find as many offsetting GST credits in their input invoices as possible. That is supposed to put pressure on service providers who might otherwise be tempted to evade their own GST obligations. That argument presupposes service providers are supplying intermediate inputs to other businesses. However, as the following table shows, a good deal of the output of specific sectors of the economy is sold directly to the consumer. (The following figures are based on the input output tables for 1993-94.)

Selected services - private final consumption relative to total supply

$M

Industry	Total supply	Private final consumption
4501 wholesale trade	38 278.8	7 217.9 (18.9)
5101 retail trade	37 853.9	36 385.3 (96.1)
5401 Mechanical repairs	10 444.5	6 294.0 (60.3)
5402 other repairs	5 132.3	1 071.3 (20.9)
5701 accommodation, cafes, and restaurants	17 376.9	14 192.3 (81.7)
6101Road transport	15 048.3	4 259.7 (28.3)
8701 community services	6 291.6	4 173.0 (66.3)
9101 Motion picture, radio etc	4 006.1	409.5 (10.2)
9201 Libraries, museums etc	2 443.8	743.0 (30.4)
9301 sport, gambling etc	8 053.6	6 897.7 (85.6)
9501 personal services	5 110.9	4 333.6 (84.8)
9601 other services	8 368.6	1 526.8 (18.2)

Source: ABS, Australian National Accounts: Input-Output Tables, 1993-94, ABS Cat No 5209.0, 13 June 1997.

The service sectors given in the above table have total outputs of $158.4 billion. That is roughly 37 per cent of GDP for 1993-94. Of that total, $87.5 billion or 55 per cent of the output is sold as final consumption. It is these sales are likely to include the greatest temptations to under-collect any GST.

Academic work seems to indicate that the expectation of reaping a windfall fiscal dividend from the taxation of the cash economy's expenditures on 'legitimate' commodities following the introduction of a GST is a myth. Such expectations ignore the changes in prices in the underground economy which would arise from the introduction of a GST. In a paper titled The Fiscal Dividend Myth of an Income/GST Tax Switch,(24) Simon Grant and Stephen P. King of the Australian National University show that where 'the ease of evasion and/or the probability of detection is the same for both income tax and a GST' a change in the tax mix will not have any fiscal dividend effects. To assert there would be a fiscal dividend from the GST would appear to be tantamount to saying that the GST is harder to evade and/or there is a greater likelihood of detection under the GST.

While a switch in the mix of taxation towards the GST cannot necessarily be expected to produce a fiscal dividend, the ABN is likely to increase the compliance under either tax system.

What is the significance of regulations prescribing details in the ABR?

As indicated above proposed paragraph 25(2)(b) of the ABN Bill provides that the Registrar must enter in the ABR the details prescribed in the regulations. Proposed subsection 31(1) states that the Governor-General may make regulations prescribing matters:

2. required or permitted by this Act to be prescribed; or

3. necessary or convenient to be prescribed for carrying out or giving effect to this Act;

Thus the regulations prescribed for the purposes of proposed paragraph 25(2)(b) would come within proposed paragraph 31(1)(a). It is also likely that regulations may be made under proposed paragraph 31(1)(b) to require entities to provide information to the Registrar for the purpose of reliably identifying them. Thus in the case of trusts, regulations may require information to enable the Registrar to reliably identify not only the trustees but also the ultimate beneficiaries through a chain of entities.

The ABN is the unique identifying number for an entity and the main purpose of the Bill as stated in proposed section 3 is to enable an entity whether it is a company, trust, partnership or sole trader to identify themselves reliably in dealing with the Australian Government for all Commonwealth purposes including its taxation laws. The Explanatory Memorandum, as indicated earlier, makes it clear that the ABN will be the public registration number for the GST and the introduction of an ABN will improve tax compliance by allowing business, in their dealings with one another and the Australian Taxation Office (ATO), to identify themselves reliably and report regularly for the purposes of taxation laws.

It is therefore necessary to await the regulations to know what further details may have to be disclosed by various types of entities to enable their identity to be established to the satisfaction of the Registrar. These regulations will be of significance as they may also specify details to be entered in the Register so that entities may be identified reliably by other entities dealing with them for GST purposes. The Treasurer has indicated that the Government proposes to enact the whole package by the end of this financial year.(25) It is therefore likely that the regulations to give effect to the measures in the new tax system legislation will also be tabled in both Houses of Parliament well before the end of this financial year for consideration with the other tranches of promised legislation. It is relevant to recall that the Australia Card Bill(26) which was certain to pass through Parliament at a joint sitting, given the Government's strength of numbers in 1987, was not proceeded with when it was realised that regulations which would set the actual dates on which the Australia Card Scheme would take effect were likely to be disallowed by the Senate.

The Australian Business Number and Privacy Legislation

Under the measures in the ABN Bill an ABN will be available to all businesses in Australia. An ABN will also be available to all other entities that need to deal with Government, such as charities and religious organisations. To get an ABN an entity must apply to be registered in the Australian Business Register (ABR) in a form approved by the Registrar. Proposed clause 9(3) of the ABN Bill states that the approved form may require the name and address and other information about an associate or any identifying number that has been issued to the entity or an associate. There is no requirement that the form approved by the Registrar must contain details that will be prescribed in regulations so that there is no indication at this stage as to what other information the Registrar may require in the approved form. The Australian Business Register will include the ABNs issued to various entities and associates. It will be a register to which the public will have access. The ABR will also include other details in relation to an entity as referred to in proposed paragraph 11(3)(d) of the ABN Bill. It is not clear what these other details are and whether these other details will be accessible to the public. The GST Bill requires every entity making a taxable supply to indicate its ABN on the tax invoice and adjustment note relating to that taxable supply. The Explanatory Memorandum also states that the ABN will improve tax compliance by allowing businesses in their dealings with one another and the ATO to identify themselves reliably.(27)

The ABNs will therefore enhance the capacity of even the smallest of businesses to collect and analyse detailed information about identifiable customers and individuals. The ABR will be an addition to other public registers such as the business names register, company registers, electoral rolls etc with information that can be accessed by the public. Privacy concerns already exist as to the ability to match data in public registers will enable profiles to be produced and used for purposes which go beyond the use intended for any one register.(28) The ABR and ABNs may add to these concerns and also assist in building profiles of the commercial activities of entities and their associates. The Privacy Act 1988(Cth) does not apply to public registers that are accessible to the public given the definition of 'records' in section 6 nor does it apply to private registers that can be established from information gathered from public registers. The proposed ABR should therefore add to the pressure for privacy legislation to cover both the private and public sectors that conforms with international privacy principles. There were concerns that without national privacy legislation that conformed to EU guidelines, Australia might be blacklisted and isolated in cyberspace.(29) The Government has announced that Australia will have private sector self-regulation and uniform privacy legislation within 12 months. It expects to establish a light touch legislative regime based on the Privacy Commissioner's National Principles for the Fair Handling of Personal Information. The scheme will be based on industry codes and apply a legislative framework only where industry codes are not adopted.(30)

Establishing Taxpayer Identity with Electronic Commerce

One of the purposes of the ABN Bill is to improve tax compliance by allowing businesses in their dealings with one another and the ATO to identify themselves reliably. There are new challenges for revenue authorities in establishing the identities of parties involved in electronic commerce. These were highlighted succinctly in a discussion paper prepared by the OECD Committee on Fiscal Affairs titled - Electronic Commerce: A discussion Paper on Taxation Issues.(31) Implementation Option 8 of this paper encouraged governments to examine the possibility of translating the initiatives for a single registration point for government services to the electronic commerce environment. This would require establishing a single web site entry point for clients.

The OECD Committee highlighted the difficulties of identifying taxpayers to a business transaction as follows:

Implementation Option 12 suggested that Revenue authorities may collectively through international organisations like the OECD provide guidance to parties developing identification standards or protocols for electronic commerce.

It is relevant to note that the draft of the Electronic Transactions Bill 1999 which was released by the Attorney- General last week is indicative of the difficulties of selecting, at the present time, a universally acceptable reliable method of identifying the signature of a party to a transaction. Thus proposed clause 12 of the draft Bill states:

To enable Internet users to establish their credentials for any transactions, the concept has arisen of digital certificates. These are software packages containing personal references and a private key for security encryption.

Thus the initiatives in the ABN Bill for an ABN which is a unique business identifier may be a first step in identifying transactions in the electronic commerce environment. However, it will require collective action with revenue authorities in other jurisdictions for developing universally acceptable standards as suggested in the OECD discussion paper.

 

 

Endnotes

2. Explanatory Memorandum to the A New Tax System (Australian Business Number) Bill 1998 and A New Tax System (Australian Business Number Consequential Amendments ) Bill 1998; paragraphs 1.7 and 1.8; p. 4

3. A list of the Bills is set out below:

   • A New Tax System (Aged Care Compensation Measures Legislation Amendment) Bill 1998,
   • A New Tax System (Australian Business Number Consequential Amendments) Bill 1998,
   • A New Tax System (Australian Business Number) Bill 1998,
   • A New Tax System (Bonuses for Older Australians) Bill 1998,
   • A New Tax System (Compensation Measures Legislation Amendment) Bill 1998,
   • A New Tax System (End of Sales Tax) Bill 1998,
   • A New Tax System (Fringe Benefits Reporting) Bill 1998,
   • A New Tax System (Goods and Services Tax Administration) Bill 1998,
   • A New Tax System (Goods and Services Tax Imposition-Customs) Bill 1998,
   • A New Tax System (Goods and Services Tax Imposition-Excise) Bill 1998,
   • A New Tax System (Goods and Services Tax Imposition-General) Bill 1998,
   • A New Tax System (Goods and Services Tax Transition) Bill 1998,
   • A New Tax System (Goods and Services Tax) Bill 1998,
   • A New Tax System (Income Tax Laws Amendment) Bill 1998,
   • A New Tax System (Medicare Levy Surcharge-Fringe Benefits) Bill 1998,
   • A New Tax System (Personal Income Tax Cuts) Bill 1998, First Reading,
   • A New Tax System (Trade Practices Amendment) Bill 1998, First Reading,

   The first 16 of these Bills were introduced on 2 December 1998 and the 17^th Bill was introduced on 10 December 1998.

4. Circulated by the Hon. Peter Costello MP, Treasurer of the Commonwealth of Australia (AGPS) August 1998.

5. Hansard, House of Representatives; 2 December 1998, p. 1087.

6. Hansard, House of Representatives; 3 December 1998, p. 1343.

7. Tax Reform: not a new tax, a new tax system: The Howard Government's Plan for a New Tax System; pp. 133-134.

8. Ibid., p. 150.

9. Ibid., p. 145.

10. Ibid., p. 146.

11. Explanatory Memorandum to the A New Tax System (Australian Business Number ) Bill 1998 and the A New Tax System (Australian Business Number Consequential Amendments) Bill 1998; paragraph 1.2, p. 3

12. Ibid., paragraph 1.37, p. 8

13. Ibid., paragraph 1.7.

14. Ibid., paragraph 1.64, p. 13

15. The reader is referred to the Bills Digest on the A New Tax System (Goods and Services Tax Administration) Bill 1998 for penalties to be imposed for offences such as failure to apply for registration; failure to issue tax invoices or adjustment notes; failure to give GST returns and late payment of GST.

16. Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998, paragraph 7.4, pp. 177-178.

17. Explanatory Memorandum to the A New Tax System (Australian Business Number) Bill 1998 and A New Tax System (Australian Business Number Consequential Amendments ) Bill 1998; paragraph 1.64, p. 13.

18. Ibid., paragraph 1.53, p. 11.

19. Ibid., paragraph 1.38, p. 8.

20. Ibid., paragraphs 1.7 and 1.8, p. 4.

21. Ibid., paragraph 1.20; pp. 5-6.

22. Tax Reform: not a new tax, a new tax system: The Howard Government's Plan for a New Tax System; pp. 133-134.

23. Ibid., p. 150.

24. UK: Why Small Firms Turn Business Away; Leicester Mercury; 18 August 1998.

25. Australian Economic Papers; Vol 36, No. 69 (December 1997), pp 167-178.

26. Hansard, House of Representatives, 2 December 1998, p. 1087.

27. The Australia Card Bill 1986, introduced into the House of Representatives on 22 October 1986, was rejected by the Senate on 10 December 1986. The Australia Card Bill 1986 (No 2) was rejected by the Senate on 2 April 1987. The Australia Card Bill 1986 (No 3) was laid aside in the Senate on 9 October 1987. The three Bills were identical.

28. Explanatory Memorandum to the A New Tax System (Australian Business Number) Bill 1998 and A New Tax System (Australian Business Number Consequential Amendments ) Bill 1998; paragraphs 1.7 and 1.8, p. 4.

29. Privacy Protection in Australia: The Need for an Effective Private Sector Regime; Moira Paterson; Federal Law Review; Vol. 26(2) October 29, 1998, p. 371.

30. 'Private end of a non-war'; Ed Day, The Australian (1 December 1998).

31. Joint Press Release by Senator the Hon Richard Alston, Minister for Communications, the Information Economy and the Arts, and the Hon Daryl Williams AM QC MP Attorney-General, 16 December 1998.

32. This paper was presented for discussion at the OECD Government/Business Dialogue on Taxation and Electronic Commerce held in Quebec on 7 October 1998.

 

Attachment A

Definition of Associates in section 318 of the Income Tax Assessment Act 1936

SECTION 318 ASSOCIATES

318(1) [Associates of a natural person]

For the purposes of this Part, the following are associates of an entity (in this subsection called the ''primary entity'' ) that is a natural person (otherwise than in the capacity of trustee ):

318(2) [Associates of a company]

For the purposes of this Part, the following are associates of a company (in this subsection called the ''primary entity'' ):

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2 February 1999
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